The new rules on tax on “global low-taxed intangible income” or “GILTI” in s. 951A of the Code may result in a U.S. corporation being subject to tax on a current basis on active business income earned by a controlled Canadian subsidiary, even if that subsidiary does not have a permanent establishment in the U.S. Under Article VII of the Canada-U.S. Tax Convention (“Convention”), business profits of a corporation resident in Canada that does not have a permanent establishment in the U.S. shall be taxable only in Canada. Will CRA agree to accept requests for competent authority relief under Article XXVI of the Convention on the basis that the taxes imposed under the GILTI rules may be in violation of Article VII?
CRA responded that under Para. XXIX(2) the Convention cannot affect the taxation by the US of its own residents, except to the extent provided in Para. XXIX(3) none of whose exceptions apply in this case, meaning that the Convention does not provide mechanisms to resolve the double-tax situation involving double-taxation arising from the new GILTI rules.